Reading
Tim Wu’s “The Master Switch,” one can’t help but conjecture that the author and
Columbia University professor looks under his bed each night to ensure no
transactions are taking place wherein one party actually derives a profit. If
they are, he cries “Monopoly” in the same fashion a frightened child would cry out
for his mother in the middle of the night.

Or, perhaps
he was terrified as a child by a man with a handlebar mustache wearing a
monocle and top hat.

I,
however, respectfully assert that every time a company succeeds against
unfettered competition and government regulation, an angel gets its wings. Hey,
it’s a stretch, but makes more sense to me than dropping the “M” bomb whenever
a company exerts a competitive advantage.

In the
“The Master Switch,” Wu attempts to bring perspective to the last 150 years of
information and telecommunications history by documenting the missed
opportunities, shortsightedness, genius, and, yes, frequent failings of acumen
displayed by the giants of telegraph, telephony, film, radio, television and
the Internet. In each instance, Wu argues the innovative geniuses at the heart
of each technological revolution pursued the almighty dollar by pandering to
the lowest common denominator of a crass American public.

Stay Engaged

Receive our weekly emails!

email address

Still in Bedford Falls

According
to Wu, when a business succeeds where its competitor does not, it’s because the
public is oblivious to the evils perpetuated upon them – and the rules weren’t
fair to begin with because it presupposes some businesses succeeded at the
expense of others’ failing.

Competition,
by its very nature, guarantees that one party will rise above its opponent – if
only temporarily, until something or someone, some better service, some better
product, knocks it off its perch. I believe this is what economist Joseph Schumpeter
meant when he labeled the process “Creative Destruction,” not, as Wu would have
it, a glass half-empty philosophy turning all-American towns into ugly
dystopias.

Indeed,
sometimes a bit of business and political chicanery occurs as well. The first
is best handled by allowing the market, clearly understandable law, a light
regulatory touch, and, as a last resort the courts, to rectify the ill. The
latter, however, is truly a breach of the trust a public places in its elected
officials and their respective appointees.

Government Barriers of
Entry

Even Wu
relates government-instituted barriers of entry when he details how the Federal
Communications Commission protected the Bell “monopoly” by playing devil’s
handmaiden to its persecution of the Hush-a-Phone company from 1948 to 1956.
The small company, explains Wu, developed and marketed a “silencer” consumers
could attach to telephone handsets, thereby ensuring increased speakers’
privacy from potential eavesdroppers.

AT&T,
however, threatened customers contemplating the purchase and use of
Hush-a-Phone with termination of their telephone service on the grounds the
device violated a federal tariff: “In 1950 the FCC decided to hold a trial
(officially a ‘public hearing’) in Washington, D.C., to consider whether
AT&T, the nation’s regulated monopolist, could punish its customers for
placing a plastic cup over their telephone mouthpiece.” (p. 110)

The FCC,
Wu writes, sat on the case for five years before deciding for AT&T. The
Washington, D.C., Court of Appeals reversed the FCC decision, reproached the
commission for taking five years to render a determination, and affirmed
customer’s “right reasonably to use his telephone in ways which are privately
beneficial without being publicly detrimental” (p. 123). Astute readers may
recognize the parallels from this past April when the same court ruled the FCC
had no authority to impose network neutrality principles on cable and broadband
provider Comcast.

AT&T
is too easily depicted as the Mr. Potter in Wu’s Capra-esque melodramatic
rendering – abetted by the FCC as doddering Uncle Billy intent on defending its
initial protectionist role. Poor George Bailey is played by Hush-a-Phone’s
Henry Tuttle, the little man vindicated by the Court of Appeals’ angel
Clarence.

What Wu
fails to grasp, however, is had the government not bestowed its noncompetitive
regulatory blessings upon AT&T in the first place, Hush-a-Phone just
might’ve been Ernie Bishop, successful Bedford Falls cab driver. When Uncle
Billy shows up three-pints in, nothing but mischief can result, including
stifled investment, job creation and technical innovation wrought by regulatory
uncertainty.

We’re not
just talking about the Bedford Falls Savings and Loan here, folks.

Selecting Winners and
Losers

Wu
acknowledges in his discussion of the Taft administration’s investigation of
AT&T practices: “We see for the first time something that will occur again
and again in the state’s calculated exercise of discretion over whether to
bless or destroy the monopoly power, deciding in effect what industry it will
allow to be dominated.”

In short:
government assumes the power to select winners and losers in the marketplace,
ostensibly under the guise of leveling the playing field. But for the indisputably inherent fact the
playing field can never be level. There’s always an earlier riser, a faster
gun, better long-distance service, and even better advertising and product
placement, not to mention the game-changing elements economists call
externalities over which players often possess little or no control.

That’s the
reality of free-market competition, not monopoly, Professor Wu. And it’s truly
a wonderful life.

#####

Bruce
Edward Walker is managing editor of The Heartland Institute’s Infotech & Telecom News and former managing
editor of MichiganScience at the Mackinac Center for Public Policy, a research
and educational institute headquartered in Midland, Mich. Permission to reprint
in whole or in part is hereby granted, provided that the author and the Center
are properly cited.